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From Banking and Finance Law Daily, March 12, 2015

Commerzbank AG to pay $1.45 billion over AML, other violations

By Mark S. Nelson, J.D.

Commerzbank AG agreed to pay hefty fines to end a probe by the Department of Justice into whether the bank ignored warnings from some of it managers that its compliance with U.S. sanctions laws aimed at curbing trade with some countries had fallen short of what was legally required. All told, the bank will pay $1.45 billion related to charges set out in a four-count criminal information filed today. The deal includes a deferred prosecution agreement in which the bank and its New York branch admit specified conduct.

Covers and filters. The charges focused on back-office practices at Commerzbank’s Frankfurt, Germany headquarters. Specifically, the bank allegedly used “cover payments” and “U.S. sanctions filters” to hide the funds of Iranian and Sudanese entities (who were subject to U.S. sanctions) while those funds transited the U.S. financial system. These activities ran afoul of the International Emergency Economic Powers Act (IEEPA).

The bank also was accused of furthering a multi-billion dollar accounting and securities fraud at medical imaging company Olympus. The alleged fraud in that case thrived due to Bank Secrecy Act violations at Commerzbank’s New York branch.

“Commerzbank committed these crimes even though managers inside the bank raised red flags about its sanctions-violating practices,” said Leslie R. Caldwell. “Financial institutions must heed this message: banks that operate in the United States must comply with our laws, and banks that ignore the warnings of those charged with compliance will pay a very steep price.”

Manhattan U.S. Attorney Preet Bharara emphasized the Olympus matter. “These criminal charges follow a multi-year investigation and a guilty plea by a former Commerzbank Singapore employee who helped set up the structure that allowed for the Olympus fraud. Institutions, not just individuals, have an obligation to follow the law, and anti-money laundering laws in particular are critical for financial institutions to follow.”

According to a tally provided by Benjamin M. Lawsky, the New York Superintendent of Financial Services, whose office took part in resolving the matter, his Department of Financial Services will get $610 million, the U.S. Attorney’s Office for Manhattan gets $300 million, the Federal Reserve gets $200 million, and the DOJ and the Manhattan District Attorney’s offices each get $172 million.

What we may yet learn. Manhattan District Attorney Cyrus R. Vance, Jr. touted his office’s role in bringing about the Commerzbank deal. Vance also highlighted recent cases similar to the one against Commerzbank. During the last six years, he said, eight major banks have been fined for violations that often had their roots in behaviors like those alleged to have occurred at Commerzbank.

Vance’s office has been involved in each of the cases. The banks are: Commerzbank (2015); BNP Paribas Bank (2014); HSBC Bank (2012); Standard Chartered Bank (2012); ING Bank (2012); Barclays Bank (2010); Credit Suisse AG (2009); Lloyds TSB Bank (2009).

The ING Bank case was the subject of a Securities Regulation Daily story last year detailing comments the SEC staff sent to bank executives about how the bank’s involvement in sanctions-related violations of the IEEPA and the Trading with the Enemy Act may impact its reputation. It is possible the SEC staff has or will send similar comments to Commerzbank.

The SEC’s publication of the ING comment letters came at a time when financial institutions needed to review how they would address new sanctions issued by President Obama via a series of executive orders related to the ongoing political tensions between Russia, Crimea, and Ukraine. That review now will likely need to include how to deal with required disclosures about Cuba, given the more relaxed official U.S.-Cuba relationship. The SEC will eventually publish any staff comments it sends to issuers regarding the executive orders and other guidance issued by the federal regulators.

Companies: Commerzbank AG; BNP Paribas Bank; HSBC Bank; Standard Chartered Bank; ING Bank; Barclays Bank; Credit Suisse AG; Lloyds TSB Bank

MainStory: TopStory BankSecrecyAct CrimesOffenses EnforcementActions

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